Proctor : October 2016
30 PROCTOR | October 2016 Aligning personal and corporate insolvency Practical implications of the Insolvency Law Reform Act 2016 Significant changes to Australia’s bankruptcy and corporate insolvency regimes will take effect on 1 March 2017 with the commencement of part of the Insolvency Law Reform Act 2016 (Cth) (ILR Act). The ILR Act represents the Government’s efforts to strengthen and streamline the current regulatory framework for personal and corporate insolvency. Not only are the reforms intended to increase efficiency and decrease costs, it is hoped the ILR Act will also enhance perceptions around the conduct of insolvency professionals by creating a more robust framework for discipline and registration. The ILR Act makes notable inroads towards modernising this area of law – despite not encompassing the Government’s more recent proposals for reform.1 Given the significance of the Act’s desired outcomes it is relevant to consider its practical implications and the extent to which further reform is necessary. Why do we need new insolvency laws? Regulation of the insolvency profession has been the subject of various reviews in the last two decades.2 In 2010 the Senate Economics References Committee explored the key deficiencies of the insolvency system and put forward 17 recommendations.3 It was thought that changes to the current framework were necessary in order to promote a high level of professionalism and competence in the industry. This is likely due to the various high- profile cases of professional misconduct. The Government put forward further recommendations for reform in 2011 – despite the fact that the Senate inquiry had not resulted in any legislative change.4 Draft Bills were published in 2013 and 2014 but never received royal assent. Accordingly, the introduction of the ILR Act reflects the first real attempt to deliver on any of the recommendations arising from the numerous reviews. The ILR Act, in particular, reflects the recommendation arising from the Senate inquiry that the framework for regulating personal insolvency professionals should be applied to corporate insolvency professionals. Purpose of the ILR Act The ILR Act aims to improve communication and transparency between stakeholders and improve confidence in the profession. It will align key areas relating to corporate external administrations and personal bankruptcies and, in doing so, increase efficiency in insolvency administrations.5 The objectives of the ILR Act are achieved by introducing a new Insolvency Practice Schedule (IPS) into two Acts, the Corporations Act 2001 (Cth) (Corporations Act) and the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), which, for the most part, contain corresponding rules in respect of the registration, regulation and discipline of registered trustees and registered liquidators. The IPS (Bankruptcy) and IPS (Corporations) will be inserted as Schedule 2 at the end of each corresponding Act. A set of Insolvency Practice Rules (IPR) will accompany the ILR Act as a legislative instrument. Until those rules are published, it may be difficult to determine the true extent of the changes brought about by the legislation. Given the ILR Act’s impending commencement date, the IPR should be released in the near future. The ILR Act was due to commence on 1 March 2017, however, the Government has announced that some of the provisions will not come into effect until 1 September 2017 in order to allow the industry time to prepare for the changes. Accordingly, the provisions of the ILR Act dealing with insolvency administration processes will not commence until 1 September 2017. The reforms relating to registration and discipline will commence on 1 March 2017 as planned.6 Key changes to corporate insolvency The IPS (Corporations) introduces key changes to the current corporate insolvency framework as summarised below. Registration of liquidators The ILR Act refines the process for registration of corporate insolvency practitioners, aligning it with the existing process for personal insolvency practitioners. Under the ILR Act: • an application for registration as a liquidator must be determined by a committee convened by the Australian Securities and Investments Commission (ASIC), a registered liquidator and a person appointed by the Minister (rather than just ASIC determining the application). • The committee must make a decision within 45 days of interviewing the applicant as to whether they satisfy the criteria for approval as a registered liquidator. • The criteria to be assessed against includes the applicant’s qualifications, conduct and fitness, and whether the applicant holds appropriate insurance. • Corporate insolvency practitioners are no longer registered for life and must renew their registration every three years. • ASIC will now have the power to place conditions on the registration of a liquidator.